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In practice, the expected future spot price is unknown, and the term "backwardation" may refer to "positive basis", which occurs when the current spot price exceeds the price of the future. [3]: 22 The opposite market condition to normal backwardation is known as contango. Contango refers to "negative basis" where the future price is trading ...
If short-term interest rates were expected to fall in a contango market, this would narrow the spread between a futures contract and an underlying asset in good supply. . This is because the cost of carry will fall due to the lower interest rate, which in turn results in the difference between the price of the future and the underlying growing smaller (i.e. narrow
Markets are said to be normal when futures prices are above the current spot price and far-dated futures are priced above near-dated futures. The reverse, where the price of a commodity for future delivery is lower than the expected spot price is known as backwardation. Similarly, markets are said to be inverted when futures prices are below ...
This market situation, where () >, is referred to as normal backwardation. Forward/futures prices converge with the spot price at maturity, as can be seen from the previous relationships by letting T go to 0 (see also basis ); then normal backwardation implies that futures prices for a certain maturity are increasing over time.
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Contango and "normal backwardation" are opposites. Backwardation is something different. Someone more expert than I should correct this and add an article about "normal backwardation". Mark —Preceding unsigned comment added by 136.182.158.153 14:59, 21 May 2008 (UTC) == "Occurence" section seems incorrect == I agree. This page confuses ...
The Oxford English Dictionary (OED) is the principal historical dictionary of the English language, published by Oxford University Press (OUP), a University of Oxford publishing house. The dictionary, which published its first edition in 1884, traces the historical development of the English language, providing a comprehensive resource to ...
The calendar spread can be used to attempt to take advantage of a difference in the implied volatilities between two different months' options. The trader will ordinarily implement this strategy when the options they are buying have a distinctly lower implied volatility than the options they are writing (selling).